When couples decide to divorce, dividing debts can be just as challenging as dividing assets. Determining who will pay off marital debts often creates a complex part of the divorce process. Understanding how to divide debts helps prepare for the financial aspects of divorce.
Types of debt in a marriage
Debts fall into two categories: marital and separate. Marital debts include obligations taken on during the marriage, such as joint credit cards or loans. Both spouses usually share responsibility for these debts, regardless of whose name is on the account. Separate debts are those incurred before the marriage or after separation. In most cases, the individual who incurred the separate debt remains solely responsible for it.
How courts divide marital debt
Courts use different approaches when dividing marital debt. Community property states usually split marital debts equally between spouses. In contrast, equitable distribution states consider several factors to determine what is fair. Courts evaluate each spouse’s income, their role in accumulating the debt, and their ability to repay. This approach may result in one spouse taking on a larger share of the debt if it aligns with fairness and financial circumstances.
Debt responsibility and agreements
Spouses can reach their own agreement about dividing debts before going to court. A negotiated agreement saves time and reduces legal fees. However, creditors do not need to abide by a divorce agreement. If both spouses’ names are on a loan, they remain jointly liable to the lender, even if a court orders one spouse to pay. Non-payment can still negatively affect both spouses’ credit scores.
To protect against future issues, divorcing spouses should close joint accounts and refinance shared loans into individual names. Taking proactive steps ensures financial independence and reduces the risk of being held responsible for a former spouse’s debt.